23 March 2010

Do councils deserve a power of competence?

The Conservatives are promising to give councils a general power of competence as part of a package of localism pledges should they form the next Government. But is it a good idea for councils to become more involved in what are traditionally private sector markets, asks Kirsty Cole

There has been an ongoing debate as to whether councils should be given power of general competence rather than being constrained, as at present, by statutory limitations.

Section 2 of the Local Government Act 2000, which introduced a new power on the part of local authorities to promote or improve the social, economic and environmental well being of their areas, was initially heralded as falling only a little way short of such a general competence power, the Government stating its effect to be such that it could be regarded as a ‘power of first resort.’

Considerable encouragement was given to councils to use these powers creatively and innovately, but their impact has been limited and disappointing. Some blame was initially levelled at local government lawyers, brought up with the doctrine of ultra vires, for their over-cautious approach in interpreting these provisions. However, the recent case of LAML has clearly demonstrated the limitations on their scope and application.

Whilst government could have chosen to widen the extent of the powers through legislation, they have instead chosen to address the consequences of LAML by inserting a very specific provision in the Local Democracy, Economic Development and Construction Act 2009 enabling councils to enter into mutual insurance arrangements.

Notwithstanding this, the debate as to how widely local authority powers should be drawn remains very much on the table.

The Conservatives in their policy green paper Control Shift – Returning Power To Local Communities have returned to the concept of a ‘new’ general power of competence, branding it as a ‘freedom for local councils to act in the best interests of residents.’

As the green paper acknowledges, the implications of these proposals are ‘vast’ – the fact (and hence, increasingly, the perception) will be that they have the power to change things, to provide services that are missing, to correct market or public service failures – in short, to provide whatever it may be that local people want or lack and are prepared to pay for.

Councils are being forced to look at alternative means of service delivery, including shared services and outsourcing in respect of what might be termed their traditional functions. Back office services such as revenue and benefits, legal and personnel are prime examples. And yet, at the same time, the Conservative green paper opens up the potential of councils moving into less traditional areas in direct competition with the private sector. There seems to be both a dichotomy and an irony in this and, potentially, a seismic shift in what local authorities are about.

It is a high risk strategy which raises the spectre of high levels of deficit as well as of profit, if the business case is not robust. It potentially places an over reliance on achieving ambitious targets for income generation.

It also brings with it a more complex question as to whether the council is then placing itself in a position where it may be at an unfair trading advantage over its private sector competitors. The potential dangers and dilemmas are already graphically illustrated within my own authority. Whilst we have not yet outsourced any of our key functions, we already have contractors operating our CCTV control room and undertaking our cleaning, catering and security functions. But it is an option we would not rule out for any of our core services if there was the potential to release efficiencies and make budget savings. In other words, it is no longer a given that we will operate any of our core services in house.

On the other hand we are increasingly operating a range of services on a ‘commercial basis’. A prime example of this is our leisure centres where we promote membership schemes with proactive marketing campaigns. However, we are becoming more and more reliant on the income which is generated from those membership schemes and are continually looking to increase membership targets. If that income were to decrease significantly our predicted budget targets would be in serious jeopardy.

In common with many similar medium sized districts we are already facing acute budget problems as a result of over-reliance on buoyant income levels in planning and building control, followed by a dramatic fall in those income levels as a direct consequence of the recession and the reduction in activity in the building sector and in particular the housing market.

The council has sold its two existing depot sites and has built a new depot to house the whole of its activities, including the maintenance of its vehicle fleet, with modern and up-to-date equipment. Councils have express powers to offer MOTs on a general basis but currently, unless a separate trading company is established, can only carry out repairs on an incidental basis using spare capacity.

If the council were to be given a general power of competence, it would not need to establish a separate trading company, but could simply decide to enhance its income by offering a service providing general vehicle repairs. Our knowledge of the market is that such a service would be well received; the council, because of its investment in a new depot, could undercut its competitors and such an enterprise would be likely to generate considerable income for the council. But is it right and equitable that a council should be able to compete with the private sector in areas such as this – potentially even forcing some of those private sectors out of business – where the infrastructure to enable it to do so (in this case a modern and well equipped depot) has been funded through the public purse?

At the same time we are looking increasingly at the private sector to deliver what would traditionally be seen as core local authority functions.

Moreover, if our future lies in putting profit before people then there will be those who are denied access to services as a consequence and we will lose our true raison d’être as a public service provider to all.

A general power of competence at first sight appears to be an exciting and tempting proposition but it also brings with it dangers and dilemmas – and ultimately risk to the public who will inevitably pick up the tab when things go wrong.

Perhaps the doctrine of ultra vires and the long enshrined principle that local authorities, being creatures of statute, can only act within those statutory powers given to them, should be seen as an essential safeguard rather than as a constraint.